By Sheldon Baker, Baker Dillon Group12.19.22
The CBD (cannabidiol) marketplace faces challenges and opportunities. As a substance that was federally illegal before the passage of the 2018 Farm Bill, hemp-derived cannabinoids are still facing regulatory hurdles. Uncertainties continue to present unique challenges in financing, marketing, and production.
Even with a slight Q1 2022 slowdown, some market segments appear to be growing at a rapid pace. E-commerce remains the top sales channel. The Brightfield Group attributes changes to supply-chain issues and slowing consolidation.
As Brendan Smith, co-founder, and CEO of The Raw Botanics Co. stated, “it became very clear over 2022 that CBD as an industry has moved away from the gold rush period.”
According to Madison Cavanagh-Mailloux, senior associate at Arizona-based Columbia West Capital, M&A data sourced from Capital IQ showed CBD market revenue growth slowed in 2021, primarily due to price compression and the shift to lower price point products.
The landscape has remained competitive, continuing to drive consolidation. The U.S. and Canadian CBD market M&A unit volume grew 42.9% in 2021 compared to 2020, while the amount of total transaction value decreased by 40.1%.
To date, 2022 M&A activity decreased dramatically, with only 10 announced transactions, reflecting a decrease in the deal count of 66.7% and a decrease in total transaction value of 10.1% year-over-year.
At the same time, according to Smith, consumer education has led to demand for more quality and transparency from brands. “There is a significant interest in higher quality, custom formulated and unique products, something that has been missing from the industry.
“As the consumer has become savvier, brands have been forced to step up and produce better products,” he continued. “This trend should continue; and the big opportunity in the CBD space is for companies willing to invest in unique products. Those that continue to white label or create non-differentiated products will suffer. Some of the more interesting trends are the use of minor cannabinoids (CBG, CBC, CBN) and custom terpene blends, and combining plant and mushroom adaptogens with CBD.”
Functional mushrooms became a big trend in 2022, leading to an increase in interest in combining hemp and mushrooms. Smith says they are starting to see more brands follow what Raw Botanics started by creating hemp and mushroom blends which have great health benefits for reducing stress and improving sleep.
The recently announced partnership between Charlotte’s Web and Major League Baseball should also help to further legitimize the use of CBD and educate people about CBD’s health benefits.
Radicle Science and Open Book Extracts conducted the first-ever clinical trial study comparing cannabinoids to melatonin, with most participants receiving a cannabinoid product experiencing significant improvement in sleep quality and duration, as well as less of one of melatonin’s most common and cumbersome side effects: grogginess.
Open Book Extracts also completed its first cosmetic research study, an open-label, randomized, passive-control study examining the impact of topical serums containing Tetrahydrocannabivarin (THCV) on skin acne.
“Unfortunately,” said Cavanagh-Mailloux, “the FDA has not compiled enough information on CBD, and it remains strict on health benefit claims. As a result, regulatory headwinds combined with aggressive price compression have led to huge losses. In fact, 60% of acquirers in 2021 and 90% of acquirers in 2022 were publicly traded, with a stock price below $5 per share and much of those trading on the OTC exchange.”
Other Brightfield data showed the industry landscape remains competitive, with the top 20 companies capturing 67% of the total market share in 2021. New entrants continue to enter the market, driving companies to differentiate themselves and prepare for growth as state regulations continue to evolve.
The continued delay in regulation has resulted in relatively modest channel expansion, specifically in retail. Concentrated growth was seen in emerging channels like convenience and grocery.
Michael Scherr, founder, and CEO of Arbor Hemp noted President Biden signed the marijuana research bill into law this year. “As an owner of a hemp company backed by clinical data, this gives me hope that CBD and other hemp-derived cannabinoids such as CBG or THCV will get the attention they deserve. This is providing opportunities to increase the legitimacy of the industry.”
About the Author: Sheldon Baker is CEO of Baker Dillon Group LLC and has created numerous nutraceutical brand marketing communications and public relations campaigns for well-known supplement and CBD companies. Contact him at SBaker@BakerDillon.com.
Even with a slight Q1 2022 slowdown, some market segments appear to be growing at a rapid pace. E-commerce remains the top sales channel. The Brightfield Group attributes changes to supply-chain issues and slowing consolidation.
As Brendan Smith, co-founder, and CEO of The Raw Botanics Co. stated, “it became very clear over 2022 that CBD as an industry has moved away from the gold rush period.”
According to Madison Cavanagh-Mailloux, senior associate at Arizona-based Columbia West Capital, M&A data sourced from Capital IQ showed CBD market revenue growth slowed in 2021, primarily due to price compression and the shift to lower price point products.
The landscape has remained competitive, continuing to drive consolidation. The U.S. and Canadian CBD market M&A unit volume grew 42.9% in 2021 compared to 2020, while the amount of total transaction value decreased by 40.1%.
To date, 2022 M&A activity decreased dramatically, with only 10 announced transactions, reflecting a decrease in the deal count of 66.7% and a decrease in total transaction value of 10.1% year-over-year.
Industry Still Needs to Educate Consumers About CBD
A lack of CBD education is still a negative aspect. Many consumers still ask the question, “can I get high from CBD?” Others are confused by the high product price points. And many think that purchasing CBD at a gas station is a real bargain. Education at the consumer level by ingredient manufacturers and retail product formulators would go a long way in helping to sell more products.At the same time, according to Smith, consumer education has led to demand for more quality and transparency from brands. “There is a significant interest in higher quality, custom formulated and unique products, something that has been missing from the industry.
“As the consumer has become savvier, brands have been forced to step up and produce better products,” he continued. “This trend should continue; and the big opportunity in the CBD space is for companies willing to invest in unique products. Those that continue to white label or create non-differentiated products will suffer. Some of the more interesting trends are the use of minor cannabinoids (CBG, CBC, CBN) and custom terpene blends, and combining plant and mushroom adaptogens with CBD.”
Functional mushrooms became a big trend in 2022, leading to an increase in interest in combining hemp and mushrooms. Smith says they are starting to see more brands follow what Raw Botanics started by creating hemp and mushroom blends which have great health benefits for reducing stress and improving sleep.
The recently announced partnership between Charlotte’s Web and Major League Baseball should also help to further legitimize the use of CBD and educate people about CBD’s health benefits.
CBD Science Begins to Show Progress
Science has started to come into play in a big way. This year, CBD clinical studies were beginning to establish a link between CBD consumption and pain management, sleep, mood, anxiety, women’s health, personal care, and other health concerns. Several products have been designed to address women’s health issues, specifically, discomfort from PMS, cramps, and migraines. All positives.Radicle Science and Open Book Extracts conducted the first-ever clinical trial study comparing cannabinoids to melatonin, with most participants receiving a cannabinoid product experiencing significant improvement in sleep quality and duration, as well as less of one of melatonin’s most common and cumbersome side effects: grogginess.
Open Book Extracts also completed its first cosmetic research study, an open-label, randomized, passive-control study examining the impact of topical serums containing Tetrahydrocannabivarin (THCV) on skin acne.
Impacts of Tight Regulation: Little Channel Expansion
Still, on a negative note, “big tech, namely Google and Facebook continue to ban CBD brands from advertising,” Smith said. “This is forcing brands to get creative and look elsewhere to spend their ad budgets. Influencer marketing, affiliates, direct mail, and even print media are where those budgets are going for CBD brands.”“Unfortunately,” said Cavanagh-Mailloux, “the FDA has not compiled enough information on CBD, and it remains strict on health benefit claims. As a result, regulatory headwinds combined with aggressive price compression have led to huge losses. In fact, 60% of acquirers in 2021 and 90% of acquirers in 2022 were publicly traded, with a stock price below $5 per share and much of those trading on the OTC exchange.”
Other Brightfield data showed the industry landscape remains competitive, with the top 20 companies capturing 67% of the total market share in 2021. New entrants continue to enter the market, driving companies to differentiate themselves and prepare for growth as state regulations continue to evolve.
The continued delay in regulation has resulted in relatively modest channel expansion, specifically in retail. Concentrated growth was seen in emerging channels like convenience and grocery.
Gummies on the Go and Opportunities for Legitimacy
A focus on differentiating from competitors has also resulted in new CBD product formats. Gummies were one of the biggest and up-and-coming formats in 2021, and many companies entering this growing space are differentiating products through an array of functional ingredients, including mushrooms, ashwagandha, L-Theanine, vitamin B12 and green coffee bean.Michael Scherr, founder, and CEO of Arbor Hemp noted President Biden signed the marijuana research bill into law this year. “As an owner of a hemp company backed by clinical data, this gives me hope that CBD and other hemp-derived cannabinoids such as CBG or THCV will get the attention they deserve. This is providing opportunities to increase the legitimacy of the industry.”
About the Author: Sheldon Baker is CEO of Baker Dillon Group LLC and has created numerous nutraceutical brand marketing communications and public relations campaigns for well-known supplement and CBD companies. Contact him at SBaker@BakerDillon.com.
